With the rise in American investors holding crypto assets in recent years, it can be challenging for investment professionals to value them accurately.
To help advisors navigate the evolving landscape, the CFA Institute has created a guide to the most relevant valuation models and tools to support analysis of crypto assets, in connection with smart contract platforms, decentralized applications, and bitcoin.
Over the past decade, the market cap of crypto assets has soared to an estimated $1 trillion, according to CoinGecko, while the price volatility and industry upheaval that has become synonymous with crypto adds to the valuation conundrum.
As part of a move towards the development of a framework for crypto assets valuation, the models in the CFA Institute guide include fundamental valuation approaches such as discounted cash flow analysis and relative valuation approaches adapted from traditional finance, where appropriate, as well as newer models specific to crypto assets.
"This guide provides a framework for investment professionals to undertake a thorough analysis of the valuation drivers of crypto assets, including fundamental characteristics such as cash flows, growth rates, and tokenomics,” Rhodri Preece, senior head of research at the CFA Institute, said in a statement. “Current valuation models have their limitations, and the lack of historical data make statistically robust crypto asset valuations challenging. No single valuation model or metric should be used in isolation."
There is complexity around establishing valuation models for crypto assets, with for example, four valuation models for bitcoin alone: total addressable market, stock-to-flow, Metcalfe's law, and the cost of production model.
Preece notes that history shows that the establishment of valuation standards can take a long time.
"After Graham and Dodd published the classic 'Security Analysis' in 1934, it took decades for an established investment valuation framework to emerge for equities,” he said. “Most crypto assets are less than a decade old; as such, we should not be surprised that views over their valuation and legitimacy in investment portfolios vary widely.”
The CFA Institute’s Valuation of Cryptoassets: A Guide for Investment Professionals is available here.
Rajesh Markan earlier this year pleaded guilty to one count of criminal fraud related to his sale of fake investments to 10 clients totaling $2.9 million.
From building trust to steering through emotions and responding to client challenges, new advisors need human skills to shape the future of the advice industry.
"The outcome is correct, but it's disappointing that FINRA had ample opportunity to investigate the merits of clients' allegations in these claims, including the testimony in the three investor arbitrations with hearings," Jeff Erez, a plaintiff's attorney representing a large portion of the Stifel clients, said.
Chair also praised the passage of stablecoin legislation this week.
Maridea Wealth Management's deal in Chicago, Illinois is its first after securing a strategic investment in April.
Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.
Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.
